THE STEADY DECLINE IN U.S. COAL-FIRED GENERATION CAPACITY & STRENGTHENING OF RENEWABLE ENERGIES

“The era of coal might be ending, but a new age of good energy jobs for our country is just beginning.”?

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It is essential to recognize that transitioning away from coal as an energy source is a process that unfolds not over mere years, but across decades. This is especially evident in the U.S. market, where I would like to focus, as it provides a valuable framework that could serve as a model for the oil and gas industry's eventual transition.

As of 2024, coal's contribution to U.S. energy consumption has significantly declined, now making up about 9% of the country's total energy use. This steeply dropped from previous decades, where coal was a dominant energy source. The decline is even more pronounced in electricity generation, where coal-fired power plants now account for approximately 16% of the U.S. electricity mix, down from over 50% in the mid-2000s.

The reduction in coal use is driven by several factors according to EIA:

1. Economic Competition: Natural gas has overtaken coal as the leading source of electricity generation in the U.S., largely due to its lower cost and abundant domestic supply. As of 2024, natural gas accounts for over 35% of U.S. electricity generation
2. Renewable Energy Growth: Wind, solar, and other renewable energy sources now contribute about 23% of the electricity generation mix. The rapid increase in renewable capacity, along with incentives and technological advancements, has pushed coal further into decline
3. Regulatory Pressure: Environmental regulations have also played a key role. Policies like the Clean Air Act, Mercury and Air Toxics Standards (MATS), and carbon reduction initiatives have made it more costly to operate coal plants. These regulatory efforts have been designed to reduce the environmental impacts of coal, including its high carbon dioxide (CO2) emissions
4. Public and Political Sentiment: Shifting public opinion toward clean energy, combined with political initiatives such as President Biden's push for a carbon-free electricity sector by 2035, has accelerated coal’s decline. Many utilities have committed to reducing or eliminating coal from their portfolios in favour of cleaner and more sustainable sources.

In summary, it can be stated that these movements are driven by a combination of factors, including the impetus of new regulations, incentives to promote the development of renewable energy projects, and the taxation of existing energy sources, or alternatively, the provision of credits for new developments.

That brings to my mind the 90s European policies, based on the ideology "Who Pollutes, Pays" or "Polluter Pays Principle (PPP)". This is what is behind the regulation such as the Canadian Carbon Tax. The "Who Pollutes, Pays" or "Polluter Pays Principle" (PPP) gained significant traction in environmental policy during the 1990s, especially in the context of international environmental law and regulations. This principle holds that those who cause environmental damage are responsible for covering the costs associated with preventing, controlling, or remedying pollution. While the slogan itself became widely associated with environmental movements and policy frameworks during that time, it reflects broader global efforts to internalize the environmental costs of pollution within industries.

The same idea transferred to the U.S. Market it could be summarized in the following significant milestones:

The evolution of regulations aimed at reducing coal as an energy source in the U.S. reflects the country’s ongoing transition toward cleaner, more sustainable energy production. This regulatory journey can be traced through several key milestones:

1. Clean Air Act (CAA) Amendments (1990): One of the earliest efforts to curb coal emissions, the CAA introduced stricter limits on sulfur dioxide (SO2) and nitrogen oxides (NOx), pollutants heavily associated with coal-fired plants. This led to the implementation of emissions control technologies and the first significant reduction in coal’s environmental impact.
2. Mercury and Air Toxics Standards (MATS) (2012): The MATS regulation was a landmark rule that targeted toxic emissions from coal and oil-fired power plants, specifically mercury, acid gases, and heavy metals. Compliance with MATS forced coal plants to either install expensive pollution control systems or face closure, reducing the attractiveness of coal generation.
3. The Clean Power Plan (2015): Proposed during the Obama administration, the Clean Power Plan set ambitious carbon dioxide (CO2) reduction targets for states, with a strong focus on transitioning from coal-fired power to renewable sources and natural gas. Although the plan faced legal challenges and was eventually replaced, it signaled a major shift in federal policy aimed at curbing greenhouse gas emissions from the power sector.
4. Affordable Clean Energy (ACE) Rule (2019): Under the Trump administration, the ACE rule replaced the Clean Power Plan but took a more lenient stance on coal, giving states more authority to set their own emissions standards. Despite being less aggressive, it continued the regulatory focus on coal emissions and signaled the continued scrutiny of coal-fired plants.
5. Biden Administration Policies (2021-Present): With the goal of achieving 100% carbon pollution-free electricity by 2035, the Biden administration has introduced measures like reinstating stricter environmental standards and promoting investments in renewable energy and clean technologies. New regulatory efforts, such as updates to power plant emissions standards and tax incentives for clean energy development, further accelerate coal’s decline in the U.S. energy mix.

All developments are driving anticipated investments in the energy sectors, including renewables, SCC technologies, and nuclear energy, as per McKinsey & Company of:

In connection with the points previously mentioned, I would like to reference a recent article by IEEFA analysts Dennis Wamsted and Seth Feaster, titled "Nowhere to Go but Down for Coal."

?Recent projections of sharply higher electricity demand growth are creeping into forecasts for coal plant retirements, prompting some energy analysts to revise their closure outlooks downward. IEEFA is not among them.

?Our research shows that U.S. utilities have plans to retire or convert to gas 68,789 megawatts (MW) of existing coal-fired generating capacity from 2025-2030. This is almost twice the 36,425MW total included in data released by the Energy Information Administration (EIA) in its September Electric Power Monthly report.

?EIA’s numbers are not wrong, per se, they are just limited. The agency’s numbers reflect information provided to them by utilities; IEEFA’s data includes public announcements made by the companies, financial filings at the Securities and Exchange Commission and long-term resource plans submitted to state regulators. Another important distinction is that EIA does not include coal-to-gas conversions in its retirement data since the plant is not technically being retired. IEEFA counts those plants as retired when the conversion results in the end of coal combustion at the facility. This fact alone accounts for 12,273 MW of the difference in the two estimates between 2025-30.

?The long-term reality in the ongoing move away from coal generation is the transition has been remarkably consistent, averaging about 10,000 MW of capacity closures annually. Installed U.S. coal-fired generation capacity peaked at 317,600 MW in 2011. That was also the last year coal accounted for more than 40% of annual electricity generation, hitting 42.3%, after having averaged 48.6% in the previous decade.

?It has been steadily downhill since. From 2011-20, 103,900 MW of capacity stopped burning coal, and the remaining operational coal plants started running much less. During the pandemic in 2020, coal’s share of generation fell below 20% for the first time. This year, coal’s share of generation is expected to barely top 16%, and IEEFA expects operating coal capacity to be at or below 175,000 MW by the end of the year.

?Based on current announcements and IEEFA research, we expect operating coal capacity to continue its steady decline for the remainder of the decade, pushing the total down to about 115,000 MW in 2030. That means in 2030, 63.8% of the peak total - 203,000 MW of coal-fired capacity - will have been closed or converted to burning gas.

?Looking beyond that marker, IEEFA believes it is possible that all the remaining 115,300 MW of coal capacity still online at the end of 2030 could be shuttered by 2040.

?Three key factors support that outlook. For starters, companies already have announced plans to retire 38,921 MW of that remaining post-2030 capacity, or 33.7%, between 2031 and 2040.

?Second, age. More than 8,100 MW of currently operating coal capacity will be at least 60 years old by 2030, but plant owners have not yet announced retirement dates. It is highly unlikely any of those units will still be operational by 2040, given the increase in maintenance costs and the decline in performance that go hand in hand with aging coal plants. Another 20,000MW of coal-fired capacity will be at least 50 years old by 2030, putting them at or near their expected operational lifespans.

?Finally, even the remaining coal plants are likely to operate significantly less frequently, continuing another decade-plus trend that has seen the capacity factor (the amount of power produced divided by the maximum amount that could be produced over a given period) at operating coal plants fall steadily since 2011. That peak year, U.S. coal plants posted an annual capacity factor of 62.8%, a level that has not been approached since. Coal plants have not even hit that performance mark on a monthly basis since 2021.

?During the 2010s, coal’s annual capacity factor declined gradually through the 50% range, before dropping into the forties for the first time in 2019, at 47.5%. It has continued to fall since, posting a new annual low of 42.1% in 2023. Through July this year, it is slightly below that level, at 41.5%.

?The decline in coal’s capacity factor is noteworthy given it has occurred as the total amount of installed capacity has fallen: Coal plant operators are generating less with less capacity. Put differently, even the retirement of older, poorer-performing plants in the past 15 years has not resulted in an increase in generation at the remaining plants, which are generally younger and should be more competitive. This decline is also economically problematic for coal plants because lower power production means the fixed costs of plant operation and maintenance—which usually rise as plants age—are spread over fewer megawatt-hours generated, raising the cost of that power.

?The outlook is not going to improve, particularly as the rapid buildout of solar and battery storage, and additional wind and gas continue to undercut coal's economic and technological viability. In fact, EIA’s latest Short-Term Energy Outlook expects coal's share of the generation mBy the Numbers: Nowhere to go but down for coalarket to fall close to 10% next April — little more than half the level of April 2021.